How All Events Do Conspire Against Us

It’s the holiday season and, odds are, your bank (pretty much every bank does this) has sent you a letter about skipping this month’s loan payment. Don’t ever, ever, ever do it.

Why? you ask.

Because skipping a payment isn’t like skipping school. Truancy days don’t have to be made up. Loan payments do.

Sure, the banks will make it look like the amount due in December is forgiven – our flier says something akin to “just send back this form telling us that you want to miss a payment for $49.95, and we’ll take care of the rest” – but all that happens is the amount owed for that month gets added to the end of the loan along with any interest accrued on it and the $49.95 fee. In other words, they take the amount you are skipping off the original loan and tack it on that end.

Of course, the small print says this. But I looked at the small print, and it wasn’t until the second or third line that it actually says you are still liable for the original amount of the loan. I consider myself to be an intelligent guy, and I had to study the letter to actually find these details. An witting person is going to see “skip a payment” and think that the banks are doing them a favor at the holidays. Now, common sense would indicate that this is too good to be true (because it is). But you would be surprised how many people actually “take advantage” of this option.

The truth is, if you need some extra cash at the holidays and can’t afford to pay on your loan, simply missing a payment will be cheaper for the vast majority of people. Most late charges cost far less than $49.95, and the hit to your credit is minor, especially if it’s a long-term loan such as a mortgage.

Since most of the people who view this are probably younger and don’t have much outside of student loans, this is just a little advice worth tucking away for future reference.

I forgot to include this little tidbit from the Wall Street Journal in my last post, but I think it greatly illustrates the point I made about how many of the incoming batch of Republican congressmen are not truly interested in helping the overall recovery, but about promoting a narrow ideology based on one theory of economics.

As the WSJ article points out, the “central bank for central bankers” recommends greater regulatory controls as a means to increase long-term economic output by about 1.9% versus what would be achieved without such controls. Specifically, they would require banks to maintain higher capital reserves. Admittedly, this doesn’t have anything to do with derivatives or proprietary trading, but there is a very strong general argument for regulation of potentially dangerous practices pervading the article: reducing the risk of crises.

[T]here’s a massive potential benefit in avoiding banking crises and all the human suffering they entail. When panic and credit troubles lead people to cut back on spending and companies to lay off workers, much of the lost economic activity is never recovered. Among various studies, the median estimate of the total loss is more than three fifths of an entire year’s economic output. One central banker, Andy Haldane of the Bank of England, estimates that the costs of the most recent financial crisis could amount to 3.5 years of economic output.

As I noted (following in the footsteps of countless individuals more knowledgable and engaged than myself), the practices which Republicans currently want to re-deregulate are the very same ones which sparked the crisis which may end up costing us 3 1/2 years of growth. If they really are interested in recovery, then shouldn’t they be trying to prevent the banks from playing fast-and-loose with our money and leading us into the next Great Recession?

My full post can be found over at Fragmatic Idealism. Here’s the gist and some choice excerpts:

Incoming Republican representatives want to gut the Dodd-Frank financial reform bill and recreate the conditions which precipitated the Great Recession.

If the midterms were truly about the economy, then shouldn’t the candidates’ positions on financial reform have been at the forefront? Reducing government bloat is a worthy goal, but it is not a panacea for the deep, deep problems we face. The truth of the matter is, the pre-Dodd-Frank model of finance capitalism was unsustainable and was inevitably going to bite the hand that fed it and poison the body (i.e., fall apart and precipitate a sustained global recession).

If we don’t face up the reality that this is a logical consequence of our current uproar about small government, then we are doomed to get fucked again (and again, and again, and again …)

To be sure, these is a lesson to be learned from the Great Recession. Some have “learned” that the only answer to our problems is more government since it’s public and therefore the best safeguard against the wolves on Wall Street. Others have “learned” that small government is the best way to go because bureaucracy just gets in the way of growth, and that’s why we’re still struggling to recover. Both of these are wrong. The real lesson to be extracted from the rubble of our economic meltdown is that static ideologies are no longer applicable to globalized world.

What’s ironic about the sabotage of Dodd-Frank is that, if it works, it really will be because congressional Republicans followed through on their promise to you, and you’ll have no one to blame but yourselves. Surely they’ll cut government, and you’ll have nobody there to protect you when the next crisis inevitably rolls around.